We are now in the eighth month of extraordinary efforts to reverse the financial crisis. Tillions of dollars have been spent or guaranteed with the stated goal of getting the banks to lend again. Many acronymic plans like TARP, TALF, PPIP and countless others have been devised to accomplish the goal. Yet, it seems that for all the efforts of the Fed and Treasury, little has been accomplished, other than reward bad behavior in the Financial Markets. The more they direct their efforts only toward the largest institutions, the better the hedge becomes for bondholders everywhere. This has been the achilles heel of all the bailout plans, going back to Paulson/Bernanke and right up until today.
I think Joseph Stiglitz has been out of the country for an extended period or we would have heard more from him about the PPIP. He was recently interviewed by Der Spiegel in which he makes a suggestion that is the antithesis of the governments efforts to date.
Bloomberg has discovered some of the details of the "private-public investment partnership":
U.S. regulators may force lenders including Citigroup Inc. and Wells Fargo & Co. to sell assets and write down as much as $1 trillion in loans, twice what they’ve already recorded, based on Federal Deposit Insurance Corp. auction data compiled by Bloomberg.
Banks failing Federal Reserve evaluations of loans this month may be ordered to make sales worth as little as 32 cents on the dollar, according to FDIC data. That would be less than half of the 84 cents on the dollar the Treasury Department suggested was a possible purchase price. Some of the bank- insurance agency’s auctions brought 0.02 cent on the dollar.
The most recent chatter concerning evidence of a market bottoming pattern is widespread in nature, occurring in both financial and traditional media outlets. The impetus for this new found optimism was the release of several economic data points throughout the past week, and subsequent media analysis of the chart pattern formed by the inclusion of these data points.
Sometime in the next couple of years we are going to see the virtual death of the dollar and its death is going to be perpetuated by the very recovery the administration is now engineering.
The death I speak of may not necessarily come in the form of terrible exchange rates, but it will definitely manifest itself in the form of very high interest rates and likely inflation as well (through commodities again).
Looks like the financial oligarchs are firmly in control of the nation. The FASB relaxed the rules:
The Financial Accounting Standards Board, pressured by U.S. lawmakers and financial companies, voted to relax fair-value rules that Citigroup Inc. and Wells Fargo & Co. say don’t work when markets are inactive.
The changes to so-called mark-to-market accounting allow companies to use “significant” judgment when gauging the price of some investments on their books, including mortgage-backed securities. Analysts say the measure may reduce banks’ writedowns and boost their first-quarter net income by 20 percent or more. FASB voted 3-2 to approve the rules at a meeting today in Norwalk, Connecticut.
FDIC is accepting public comments on its Legacy Loan Program. The program that provides even more leverage in our financial system in the form of subsidies to private investors so that private investors will purchase toxic loans from banks (especially zombie banks). Look at what the FDIC is considering:
The FDIC may allow the sellers of a loan to get an equity interest in the vehicle that buys it, meaning they would gain from any future increase in the asset’s value. The aim is to give healthier banks an incentive to sell loans at a cheaper price, encouraging more investors to make bids.
Towards the end of last year, I wrote a number of posts about 2 possible scenarios for 2009: recession vs. recovery (although I noted that there could be a recession first, then a recovery). I used at least 4 different indicators to discuss what might happen.
Now that we are through with the first quarter of 2009, let's see what those indicators are showing.
Bloomberg reports that vehicle sales were down 42% YoY in March (slightly worse than the last record decline, last month, of 41%), to a record low 8.8 million units -- also a record low, down from last month's 9.1 million.
Treasury Secretary Timothy Geithner’s plan to rid banks and markets of devalued assets may be a boon for Pacific Investment Management Co.’s Bill Gross.
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